The Group's total revenue for the quarter under review increased by 10% to RM115.6 million as compared to RM105.4 million in the corresponding period of the preceding year. The improvement was mainly due to increase of high price range products in the product mix. Thus Group's profit before tax was RM6.01 million, 41% higher as compared to RM4.26 million pre-tax profits reported in the corresponding period of the previous year.

Asians could be excused for looking askance at Henry Paulson’s plan to calm credit markets. The reason: It’s the sort of thing that had US Treasury secretaries browbeating Asians a decade ago.

One thinks back to the whistle-stop Asian tours then- Treasury Secretary Robert Rubin did 10 years ago. Such trips became more numerous as Asia’s financial crisis spread from Bangkok to Jakarta to Seoul to Kuala Lumpur and beyond.

At every stop, Treasury bigwigs lectured leaders to scrap the financial socialism and crony capitalism feeding the excesses behind Asia’s turmoil. They counselled fiscal belt-tightening, higher interest rates, stronger currencies, avoiding asset bubbles and for limits on bailing out reckless investors. Basically, the US told Asia to avoid doing much of what the US is doing today amid its own crisis.

Take the Federal Reserve, which cut interest rates twice and hinted at doing more. Investor Marc Faber is absolutely right when he says the Fed acted “like a bartender” and that its actions are contributing to asset bubbles. The US also has avoided reining in imbalances, including huge current-account and budget deficits.

The US is arguably devaluing its way to faster growth, something Treasury officials chastised Asians for in 1997. Paulson puts on a good poker face, saying he favours a strong dollar to placate Europe’s concerns.

He hardly seems bothered by the euro’s 14 per cent surge against the dollar this year.

Crony capitalismAs for crony capitalism, Asians can turn the mirror on the US with one word: Halliburton. The region also watched with a mixture of horror and satisfaction when free-market symbols such as WorldCom Inc and Enron Corp blew up a few years ago.

Asians were berated for a lack of transparency. In the late 1990s, the US demanded that reserves figures be published and that clear lines be drawn between governments and private sectors. In the US, dubious mortgage products were sold, repackaged and resold with negligible transparency, while ratings companies approved of the process. The government and the Fed just stood by.

Leaders such as Suharto of Indonesia and Mahathir Mohamad of Malaysia got grief for living beyond their means - growing 10 per cent a year because of cheap financing, asset bubbles and unsustainable economic policies. That’s exactly where the US is today. Here you have the world’s biggest economy being driven by over-consuming shoppers, supported by the savings of poor Asians.

HypocrisyNone of this is to defend the economic systems that led to the Asian crisis. Yet now the US is at the center of what Nouriel Roubini, chairman of Roubini Global Economics LLC in New York, calls the “first crisis of financial globalization and securitization”. And what is the US doing? Playing a role in hypocritically bailing out those who should have known better.

Paulson’s team brokered negotiations between US banks, leading to the creation of what is essentially a bailout fund. His involvement is drawing criticism that the US is shielding gamblers from the consequences of poor bets. It doesn’t help that White House officials are simultaneously deflecting calls for regulation to keep the sub-prime crisis from happening again.

The advent of what investors are terming a “superfund” is hardly in the best interest of the world’s No. 1 economy.

Just as Asians did a decade ago, the US is bailing out financiers who made bad decisions. If financial institutions were silly enough to do what Asia was doing in 1997 - like financing long-term loans with short-term debt - then they should pay the price.

AppearancesIt’s one thing for Bank of America Corp to throw Countrywide Financial Corp a $2 billion lifeline. It’s another thing for the Treasury to involve itself in creating a company that will buy assets from structured investment vehicles, which were set up to purchase securities such as bank bonds and sub-prime mortgage debt.

Paulson and Robert Steel, the Treasury’s top domestic finance official, seem to think the end justifies the means. Their plan would help SIVs to avoid dumping their $320 billion in holdings, further roiling the credit markets. The banks would instead create a fund to absorb the debt, using the proceeds of new commercial paper sales to finance the purchases. The new assets would be financed by selling medium-term notes and commercial paper to investors.

Appearances matter. To many Asians, there’s a whiff of two former Goldman Sachs Group guys - Paulson and Steel - helping their buddies out of a rough spot, including Rubin, now head of the executive committee of Citigroup Inc, the bank that stands to gain most from such a bailout.

Critics such as former Fed Chairman Alan Greenspan and former International Monetary Fund Managing Director Michel Camdessus are right to warn about the so-called moral hazard being created here.

If banks and investors avoid the consequences of their mistakes, they will make even bigger ones next time. The notion that a safety net will be rolled out each time things go awry makes the global economy more dangerous.

It’s this and other lessons the US tried to teach Asia 10 years ago. Officials in Washington may want to begin listening to their own lectures.

``If Citigroup made a mistake, let them be penalized, let the shareholders of Citigroup be penalized,'' Faber said in an interview in New York. ``Then the shareholders will eventually put pressure on the board of directors not to do continuously stupid things.''

The biggest U.S. bank dropped 12 percent last week after saying credit defaults will plague the financial industry for the rest of the year. Citigroup spokeswoman Shannon Bell declined to comment.

``The best for the system would be if a major player would go bust,'' Faber said. ``Then there would be an example for investors and for the players, the Wall Street establishment, the banks, to be more prudent.''

China, India

Faber said this year's rally in Chinese assets, including the 171 percent gain in the CSI 300 Index, will end by the August 2008 start of the Olympic Games in Beijing. He predicted India's gains will end by the same time. The Bombay Stock Exchange's Sensitive Index has climbed 34 percent this year.

``We still have the emerging markets going ballistic,'' Faber said. ``The Chinese market could double here, but it doesn't change the fact we are already in bubble stage.''

Faber said if bubbles in emerging markets deflate, the dollar may rebound from all-time lows against the euro as fund managers who have invested in emerging markets invest in the U.S.

Warren: No, I, I, just said that we very seldom buy into a market that's gone up a whole lot, and I don't know anything real specific about the Chinese market or Chinese stocks. But I do know that when prices have gone up a whole lot then I'm more skeptical when they've gone down a whole lot. I really like the look of markets that have gone down rather than markets that have gone up. But I will say this, what I've seen in China just today, in terms of the industrial development in Dalian, is making a believer in me, certainly in the economy, but that doesn't mean that I think the stocks are attractive.

Salcon: 30pc of profit to come from insurer in 2008By Jeeva Arulampalamjeeva@nstp.com.my

October 25 2007

SALCON Bhd expects its latest insurance acquisition to start contributing 30 per cent to the company's profit for the fiscal year ending 2008.

The remaining profit will come from its core business - designing and constructing water and wastewater treatment plants and related facilities.

For the financial year ended December 2006, Salcon's net profit was RM5 million on the back of RM121 million revenue.

"We are waiting for the day to take over the company (Oriental Capital Assurance Bhd) and run it profitably," Salcon Bhd chairman Datuk Seri Goh Eng Toon told reporters after the company's extraordinary general meeting, where shareholders approved the proposed acquisition of Oriental.

Salcon will acquire 74.17 per cent of Oriental for RM130 million from Maika Holdings Bhd and the remaining shares it does not own through a mandatory general offer.

Goh said Salcon's rationale for acquiring the general insurer was to diversify into something more consistent and permanent. He said the insurance business will provide stability and sustainability of long-term recurring income and revenue stream.

Director Datuk Seri Megat Najmuddin Khas said Salcon also had the in-house expertise, making reference to Goh who was previously chairman of Aviva Insurance Bhd, which has since merged into MSIG Insurance Bhd.

"We are in the process of building the team to run this new acquisition of ours," said Megat Najmuddin.

Goh said Salcon has a local candidate in mind to spearhead Oriental but will only make the announcement after receiving Bank Negara Malaysia approval.

He said the total acquisition will cost RM180 million and is expected to be completed by end-February 2008.

On Salcon's water business, chief operating officer How See Hock said the company will continue to look for investments in the water sector.

Salcon's current order book stood at RM650 million, while total worth of local and overseas projects it has tendered for was RM7.5 billion.

"A few projects in negotiations are in advance stages in Indonesia and we hope to seal it very soon. By year-end we should get something," said How.

Here are some of the things i find so amusing...

1. For the financial year ended December 2006, Salcon's net profit was RM5 million on the back of RM121 million revenue.

Now that statement is so amusing when you compare it to point 2 below.

2. Salcon's current order book stood at RM650 million, while total worth of local and overseas projects it has tendered for was RM7.5 billion

So huge is the company's water projects order book! 650 million! And it tendered a whopping 7.5 billion worth of projects. (hmm.. a tender is a tender, yes?)

Now when you compare it to point 1... u get a company bidding and winning so many projects but yet.... there is so little to show. A profit of only 5 million?

Now consider this point... based on Salcon's current price of 1.06, this company is worth a whopping 463 million!!!

My oh my!

What a wonderful stock market it is to value Salcon at 463 million when you considered the fact that the company only earned a mere 5 million for it's last fiscal year 2006.

And clearly water isn't delivering for Salcon despite all the hype.

Btw.... if you think i am terrible on Salcon, look at the bare facts. Look the most recent 7 quarterly earnings Salcon has announced.

Well, if you total its most recent 7 quarterly earnings, it's losing money isn't it?

And the current half year, fiscal 2007, Salcon only earned some 330k.

YES .... SALCON ONLY MADE 330k!!!

so why wasn't this mentioned in the press?

Ah, some would argue that is the past. Currently Salcon has some order book worth 650 million and bidding for billions of contract. Surely based on future expected earnings, then perhaps there is some justifications for Salcon.

True. I do not doubt that.

But...

if the past Salcon cannot produce, what guarantee that one has it will produce in the future?

Anyway, clearly Salcon water projects ain't delivering too good.

So now it wants to go into insurance too!

Well, I am not going to lay judgement on its insurance thingee... but i just find it so rather amusing!

*** Disclaimer ... I have ZERO ideas on how Salcon the stock price would perform! ***

You seem to suggest in your book that investors should not fall for the story behind the stock. What else does one look at, then?

The key is to understand a crucial distinction, first drawn by the great investor Benjamin Graham, who was Warren Buffett’s teacher. Stocks and businesses are not the same thing. Stocks flit around all the time; you can watch them moving up and down on your computer screen all day long. In New York, it’s not unusual for the price of a stock to change at least 10,000 times in a single day of dealing, and I imagine it’s not very different in Mumbai. Stock prices are in constant flux, but business values are not. The underlying value of an ongoing enterprise does not change every day. Something like 99% of all the trading activity in the typical stock is meaningless. The future value of a business has nothing to do with the current price of its stock. What you should do is learn to look past the noisy twitching of stock prices to the enduring value of businesses as living organisms.

Is the business run by honest people who treat outside investors fairly? Does it make products or provide services for which customers are willing to pay higher prices if necessary? Can you understand its financial statements?

These constitute the reality of the business and determine its future value. The “story” behind the stock is almost certainly nothing more than the stampede of thousands of speculators in and out of the shares. Train yourself to ignore them.

“The best financial decisions draw on the dual strengths of your investing brain: intuition and analysis, feeling and thinking,” you write. Isn’t there a dichotomy there?

Yes, there is. But let’s get our terminology straight, and again we can do so by going back to Benjamin Graham. Graham’s formal definition has never been improved upon: “An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return.” Notice carefully that this is neither an “or” nor an “and/ or” definition; all three components - analysis, safety, and an adequate result - must be present. If any of them is missing, you are not investing. You are speculating. In India, as in the United States, most people who call themselves “investors” are not investors at all. They are speculators. In the short run, particularly while the Indian capital markets are rapidly developing, speculators may be able to earn high returns by rapidly trading stocks without doing thorough analysis. But in the long run, you cannot earn sustainably high returns from mere “gut feelings.” I find it striking that in a society with cultural traditions of great patience and acute analytical ability, so many people trade as if their knickers were afire, scoffing at the long term and analysing nothing but the craziness of the crowd. There is no doubt in my mind that Indians have the potential to lead the world in investment skill. But, so far as I can tell from my faraway vantage point, what most Indians do is not investing. In my own portfolio, I do not invest with the next year in mind, nor even with the next decade in mind. I invest with the next century in mind; that is when my heirs will benefit from my decisions. I do not care what stock prices do this afternoon, or this week, or this month, or this year. I care whether business values are rising. That is what it means to be an investor. You have written about the link between dopamine and the way investors invest.

What’s the link?

Dopamine makes us pursue whatever we think will be rewarding. When we earn more than we expected, that generates a “positive prediction error” - a flood of dopamine that signals to our bodies that something good has happened. After only a few repetitions, the dopamine is released in our brains, not when we earn the actual gain, but when we believe we know that the gain is coming. It is not the reward but the prediction of it that generates pleasure in the brain. I call this the “prediction addiction.” You become addicted to your own belief that you are about to make money. Like any addict, when the reward does not come, you will go into a painful withdrawal.

Why do investors get greedy? Even Isaac Newton lost most of his money in the South Sea Bubble. What does Neuroeconomics have to say on that?

Greed is generated in the same regions of the brain that produce pleasure when we find food or shelter or love. These basic reward circuits are among the oldest systems in the human brain. Geniuses have them, too. Brilliant people are better at generating great ideas than the rest of us, but they are no better at controlling their own emotions than you or I. We get greedy because the anticipation of profits activates the dopamine system in the brain, flooding our neurons with a signal of excitement. Newton was not just one of the smartest men of all time, but was also very well-informed financially; he was the master of the Royal Mint. So he certainly knew better in the “thinking” part of his brain. But his “feeling” brain was swept away with greed. If you do not put policies and procedures in place, in advance, to control your emotions, you will never be able to resist the siren song of the markets when the markets go mad. Common sense and good judgment are vastly more valuable than intelligence.

What makes investors book profits fast, but hold on to their losses?

We do not merely buy stocks and sell them. What we really are buying is pride and prowess, and what we really are selling is pain and shame. Once a stock earns a large gain, you want to lock in the reason for your pride and the proof of your prowess; if you hang on too long, the profit may disappear. But, once a stock produces a big loss, you want to hide the source of your pain and shame. If you sell at the bottom, you will have to admit your error, and that admission will only compound your shame. Whenever humans are ashamed of anything, we cover it up. So we cover our financial losses by pretending they are not there.

So, what is the best way to invest?

My fondest wish for Indian investors is that index-tracking funds will become widely available at very low management fees and dealing costs. If I were an Indian financial entrepreneur, I would study US firms like Vanguard, Barclays Global Investors and Dimensional Fund Advisors to learn how they run their tracking funds so efficiently and fairly. And if I were a young Indian investor, I would embrace low-cost tracking funds and put most of my money there for the very long run. The combination of diversification, simplicity, convenience, and low cost provides an insuperable advantage to the tracking investor. The life of a rising professional is busy enough without having to spend precious time and emotion following every momentary rise and fall of every stock you own. If your money cannot buy you peace of mind, why invest at all?

Does luck have a role in investing?

Luck has a great deal to do with it. Whenever a stock trades, the buyer thinks the seller is making a mistake. The seller thinks the buyer is mistaken. Only one of them can be right. After they both pay their dealing costs and any taxes on the transaction, neither may show any net profit for his pains. In the short run, almost anyone can be right a few times in a row, by luck alone - just as anyone can flip a coin right-side up several times in a row without any coin-flipping skill, whatsoever. Even in the long run, luck can rule the day. It can take years, even decades, to determine whether an investor has genuine and repeatable skill or is just lucky. The danger comes when you believe you are skillful and, in fact, you turn out to be merely lucky. Then you do things out of a belief that every step you take is the right one, and you end up slipping on a banana peel and falling down the stairs.

You talk about the “illusion of control.” Investors tend to be over-optimistic when they are directly involved and have had no negative experience from the over-optimism. How does this affect investing decisions?

It is easy to believe “I did it” when a stock you buy goes up. However, your actions did not cause the price to rise. Ask yourself this: If I had not bought the stock at all, would it not have risen without me? The way to escape the illusion of control is to invest with the aid of a checklist, a series of rules you must always follow before buying or selling any investment. This way, the rules make the decisions for you, and you take your pride out of the picture, enabling you to be more objective. In my book, I outline some rules that may be useful for many people.

Can financial future be foretold?

Some things can be. I am very confident predicting that the Indian stock market will lose a third of its value over the course of a few months. However, I have no idea, whatsoever, when this will happen. I am equally confident predicting that the Indian stock market will rise ten-fold and more over the long term. And I am more confident still in predicting that the true investors who have the courage to buy when the market crashes will make much more money in the long run than the fools who buy only when stocks go up.

Why are investors so addicted to CNBC? Their broadcast gives a feeling the “stock markets are in a crisis all the time.” Does that have an impact on the way investors invest?

Years ago, you could only find out a stock price in tomorrow’s (or sometimes, the next week’s) newspaper. Now you can find out the latest price every few minutes on CNBC or every few seconds online. This is the tragedy of technology - that the tool that should make us wiser, instead makes us act more foolishly than ever before. The human brain is a pattern-recognition machine. The more frequently you look at a series of data, the more often you will see “trends” and patterns that are not really there; they are nothing more than chaos clothed in a costume of regularity, illusions of order in streams of data that are utterly random. After two consecutive stimuli in the same direction, the human brain automatically, involuntarily, and uncontrollably expects a third. We extrapolate repetition out of what actually is randomness. CNBC is addictive because it continuously presents you with the opportunity to perceive what is not actually there: order, predictability, reliable patterns. It grips us the way all great fiction is gripping, with the added irony that very few of us realise that what we are watching is actually fiction.

Most of the investment experts do not really give any usable information. Is not listening to such experts better than taking them seriously?

I would listen very seriously to any financial expert who would provide a comprehensive record of every forecast he has ever made, both good and bad. Many forecasters will tell us about every single one of their successes. However, to the best of my knowledge, there is no financial forecaster alive who has ever provided a complete list of all his predictions, including the failures. There’s a reason for that: Anyone who really knew how to forecast the financial future would be most unlikely to let others in upon his secrets.

Monday, October 22, 2007

Buffett's decision to sell PetroChina was ``100 percent'' based on the share price, he told anchor Liz Claman. Human rights groups have been calling on him to sell the stake.

On Bear Sterns

``That was an incorrect story,'' he said. ``We were not taking a stake. That one had no basis.''

On USD and Brazilian Real

Buffett identified the Brazilian real as the unnamed currency he said in May that he owned, noting it has doubled against the U.S. dollar in the past five years.``During much of that time, the Brazilian government has in effect been supporting the U.S. dollar,'' Buffett said. ``They have been buying dollars in the market, they have been building up their own reserves. Their current account has turned into a good surplus,'' while the U.S. is behaving like ``the Brazilians or the Argentinians 10 or 20 years ago.''Buffett said he wasn't suggesting anyone buy reais. ``We may be cashing out. This is not a huge position. We'll make $100 million,'' he said.

Of significant interest about BLand are its six overseas projects worth RM37.2 billion in addition to undeveloped valuable land in Kuala Lumpur.

BLand is also expected to enjoy steady cash flows from dividends as well as equity-accounted profits from its 48 per cent stake in "crown jewel" associate Berjaya Sports Toto Bhd (BToto).

"Our recent visits with the management have left us coming away fairly optimistic of BLand's growth prospects," ECM Libra Avenue wrote in a note on last Thursday.

Citing examples, the research house indicated a 33-sen annual rise in BLand's fully-diluted earnings per share by applying a 10 per cent net profit margin on its RM37.2 billion worth of property jobs in China, Thailand and Vietnam.

This, in turn, translates into a RM3.7 billion net profit to be recognised over the next 10 years.

On BToto, ECM Libra Avenue expects the gaming entity to sustain its 40-sen gross dividend per share payout at least in the next three years, hence, translating into an eight per cent gross yield.

On BToto's 90 million treasury shares, it said that if the shares were cancelled, it would reduce BToto's share capital base and, therefore, increase its earnings per share.

However, shareholders also stand to gain higher dividends if BToto decides to sell the securities in the market, assuming the entire proceeds are returned to shareholders as a special dividend.

"BLand stands to benefit significantly given its controlling 48 per cent equity stake in BToto," said ECM Libra Avenue, which initiated coverage on BLand with a "buy" call and a RM5.50 price target.

Friday, October 12, 2007

REDtone International Bhd, already late in finalising its accounts for the financial year ended May 31, 2007, needs another week to close its books. The company in an announcement last Friday said the delay was because it could not finalise audited accounts for its subsidiary in Pakistan.

A source says a part of the problem could be due to REDtone only recently managing to find a replacement for its accounts manager in Pakistan "after several months". But essentially, auditors are having problems tallying numbers in Pakistan due to discrepancies in entries in its books involving foreign exchange (forex) rates, the source says.

"The numbers (entries) do not agree (tally) because of the difference in the exchange rates for Pakistani rupee to the US dollar and the Malaysian ringgit. And the ringgit has been appreciating against the dollar, but the Pakistani rupee has weakened. There's some complication because some of these complex forex entries are done manually (not computerised)," the source adds. Payments to suppliers, for instance, are made in US dollars.

There are also some issues with the recording of sales from its "call back" telephony service. Nonetheless, it is understood that the company does not suspect any "foul play" taking place at the moment.

Whether or not one accepts the explanation of complications in forex computations, it is clear that there is a problem with its business processes. And it seems to be a problem that only just arose because REDtone had never been late in submitting its accounts. The company will need to assure investors that the issue will be fixed fast. ( Click here for the rest of the article: 8 Oct 2007: Corporate: REDtone's numbers in Pakistan don't tally )

The very next day..

09-10-2007: MD: No fraud in REDtone accountsby Ellina Badri

PETALING JAYA: REDtone International Bhd’s delay in submitting its annual accounts for the financial year ended May 31, 2007 was not due to fraud or wrongdoing in finalising its accounts for that year, its group managing director Wei Chuan Beng said.

He told The Edge Financial Daily yesterday that it took some time to finalise the accounts as it had to “re-do” accounting entries of its subsidiary in Pakistan due to the difference in the exchange rates of the Pakistani rupee to the US dollar and the ringgit.

He said the accounts were now being finalised and REDtone’s auditors would present the report to the company in the next two days, to be announced to Bursa Malaysia this Friday.

The Edge weekly, in its latest issue, had reported that REDtone had yet to submit its FY07 audited accounts since missing Bursa Malaysia’s initial Sept 30, 2007 deadline.

Asked if the delay reflected on the efficiency of the company’s business processes, Wei said the incident was a “one-off thing” and moving forward, it would look to hedge currency fluctuations on a weekly and monthly basis to avoid this issue recurring in the future.

He added he was confident the accounts would show “very positive progress” in the company’s revenue.

Meanwhile, Wei said the company viewed the current setback separately from its plans to migrate to the Main Board of Bursa Malaysia from the Mesdaq Market.

He said its migration to the Main Board was a shareholders’ matter and the emergence of REDtone’s new Bumiputera shareholders ensured its plans would move forward.

Warisan Jutamas Sdn Bhd, controlled by Mohamed Shah Kadir and Abdul Karim Kadir, had emerged as a substantial shareholder in REDtone with a 10% stake last Friday.

On brokers’ Sell recommendation on REDtone’s stock, Wei said they might not have had current information on the company which had new developments such as in its Bumiputera shareholders, overseas developments and future partnerships.

KUALA LUMPUR: REDtone International Bhd yesterday announced deviations in its results for the financial year ended May 31, 2007 with a 45% difference between the audited and unaudited group net profits.

The company said the audited group net profit for FY07 was RM4.9 million compared with RM8.98 million for the unaudited figures.

It said the deviations originated from profits after taxes, where audited results totalled RM5.6 million against the unaudited RM10.5 million. The RM4.96 million difference, said REDtone, was due to unrealised net foreign exchange losses on an inter-company loan (RM2.98 million) and unrealised net foreign exchange losses on trade receivables (RM1.13 million).

Other deviations making up the RM4.96 million were RM2.48 million worth of traffic costs associated with committed but unutilised airtime, deferred tax assets from unabsorbed losses and unutilised capital allowances (RM1.86 million), minority interests share of loss (RM897,000) and other items (RM666,000).

The Edge weekly recently reported that REDtone had yet to submit its audited accounts for FY07 after missing its September deadline.

On Monday, REDtone group managing director Wei Chuan Beng said the delay in submitting the annual accounts was not due to fraud or wrong doing in finalising the accounts for that year.

He said it took some time to finalise the accounts as the company had to re-do accounting entries in its subsidiary REDtone Telecommunications Pakistan Pte Ltd due to the difference in the exchange rates of the Pakistani rupee to the US dollar and the ringgit.

Many value investors will pass on a growth stock that has a P-E ratio higher than a predetermined level. For example, they may discard all stocks that have a ratio of 20 or higher, regardless of the industry group they come from. Some investors will discard any stocks that have P-E ratios above the industry group averages, concluding that they are grossly overvalued. I am not saying that this method doesn’t work, because it does but it will not work when you focus on buying young innovative small cap stocks that are growing at tremendous rates, rates that “big caps” can no longer sustain. Growth stocks cost more because they GROW!

I have never passed on buying a stock due to its P-E ratio being too high. What is too high? Too high to one investor may be low to another investor. This is the same logic that I use when speaking of stock’s price. One problem that I have with some value investors is their lack of understanding of the movement of the P-E ratio line on a chart. As a stock begins to move 100% or 200% from its pivot point, the P-E ratio will also move higher over the course of time. Plotting the P-E ratio on a chart will show you how much of a gain the ratio has made as the stock continues its up-trend.

Value investors that pass on buying stocks with P-E ratios above a certain threshold have missed some of the biggest winners of all time (the 10-baggers as Peter Lynch would say). Analysts frequently downgrade stocks when their P-E ratios cross what they believe to be fully valued thresholds. I show three examples at the bottom of this post along with their charts pasted throughout (GOOG, AAPL, BIDU).

The P-E ratio uses a stock’s current price and divides it by total earnings per share over the past four quarters. For example, currently GOOG has a P/E ratio 46.73 with a share price of $609.62. Its last four quarters of EPS add up to $13.04. Its P-E ratio is $609.62 divided by $13.04, or 46.73

Growth stocks usually sport higher P-E ratios than the rest of the general market, even at the start of up-trends. With profitable growth stocks, a high P-E ratio typically means that the stock is enjoying strong demand. If a stock climbs in price from 40 to 60, its P-E ratio also gains 50%. Even though the P-E ratio may be high according to some analysts and value investors, the stock may be about to breakout from a pattern and go on to double, triple or even better. Would you want to miss out on a possible 100% gain because the P-E ratio is too high? I have had more success using the PEG Ratio instead of P/E Ratio.

Google could be trading above $900 per share based on its average earnings estimate for FY08. The current P-E ratio is most likely too high for most value investors but I can’t ignore the growth prospects based on one simple academic calculation. Remember, the market will pay a premium for luxury items. Items they feel are worth the extended value!

Investor’s Business Daily conducted an excellent case study in 1996-97:

“The 95 best small- and mid-cap stocks of 1996-97 had an average P-E of 39 at their pivot and 87 at the peak of their run-ups. The 25 best large caps of those years began with an average P-E of 20 and rose to 37. To get a piece of these big winners, you had to pay a premium.”

When I purchase a stock, I note the current P-E ratio and chart it along with the price. Historically, P-E’s that move up 100%-200% or more while the stock is advancing, usually become vulnerable stocks and can start to become extended and flash sell signals. It holds true for a stock with a P-E starting at 15 and going to 40 or a stock with a P-E of 50 and going to 115. Don’t skip over EXCELLENT companies that are growing at amazing clips because of a high P-E ratio. ( To read rest of the article, click here )

Let's look at this recovery issue on the broader sense and let's focus on the investor HOLDING a stock, a company with a a strong business, and let's say a strong business having a setback.

That's the focus of this posting ok?

ie.. What should the investor do when the company's business suffers a setback?

That can always happen yes. Now should the investor allow time to let the company business recover?

The simple argument is that if the business is good, surely the business can and will recover. Yes? That's simple cow sense.

Time should always be used to the investor advantage.

I fully agree.

However, in my opinion,time should NEVER be a disadvantage to the investor too! That's the simple dark side of the time issue.

For me, holding a stock and waiting for the company business to recover is probably the worse thing one can do.

I can name off hand easily some listed stocks whose business and even its share price failed to recover. Abric, Bintai and Mieco Chipboard. Holding. 3 well known stocks which had a solid investment reasoning during its heydays and waiting for the business to recover would have yielded a huge dent in the investor portfolio.

Oh yeah... some stocks have indeed recovered and performed remarkably well.

But do we want to take the chance?

And not forgetting the damaging psychological effect on the investor during the initial period when the company business endures and suffers during the setback in business. Cause we know very well that there is a very strong possibility that the stock price will be hit hard and the longer the company's setback continues, the longer the stock price would suffer.

And this is simply no good at all to the investor mindset and most of all, it is simply damaging to the soul!

Let's get real, we are but normal folks. We ain't no super duper investor like Warren Buffett. And more importantly, we have limitations to our piggy bank.

Hence holding on a stock whose business faces a setback is a terrible option because for most average investors, it is simply terribly difficult to gauge the exact problems of the business setback.

Well, if it is a temporary setback, everything should work out great.

However, what if the setback becomes a long term thingee? What if the setback takes much longer?

Does the investor wants to sit on their investment and wait (or is it HOPE) that the company business would recover?

Take my other favorite mumbling on Mieco Chipboard. The weakness in the company's business fundamentals was first noted on 24th May 2005. Price then for Mieco was 2.89. Price of Mieco now is only 0.89. The stock needs to gain a whopping 2.00 just for the investor to recover back the cost of investment.

Tuesday, October 09, 2007

Just for the record, RHB Research had also made a research report on the stock. However, they posted no ratings on the stock. Here are excerpts from what they wrote on their report released today.

♦ FY07-08 earnings forecasts. Management appears confident of wiping out the accumulated losses of RM176.4m by FY12/08. However, there is no earnings track record – the company reported its first net profit of RM1.5m in the 2QFY07. We estimate around RM30-35m in net profit for FY07, mostly to be reported in the 4Q and entirely due to associate profit from BNS on delivery of two naval patrol vessels in Nov and Dec 2007. For FY08, in order to achieve management’s guidance of wiping out the accumulated losses, the company would have to report net profit of RM141m. Based on the current orderbooks we believe this may be difficult. However, we would not discount the possibility of associate BNS being awarded more naval patrol vessel contracts within the next few months, which could push up the associate contribution for FY08.

♦ More conservative assumptions for FY08. We would be more comfortable making the following assumptions for FY08:

o RM400m revenue at BPS, including RM300m from existing orderbooks, and another RM100m from contracts to be secured within the next three months.o Net margin for BPS of around 10%.o Add RM18m profit from servicing and repair contracts.o Associate BNS to deliver two patrol vessels in FY08, and earn net profit of RM36m based on RM430m contract value per vessel and 20% margin.

On this basis, we estimate net profit of RM94.2m for FY08 and EPS of 37.9 sen. we thus estimate a fair value of RM6.07 based on 16x FY08 PER, after imputing a 20% discount to our sector target PER of 20x to account for execution risk.

Within our forecasts. Although this contract can be viewed as a breakthrough for KNM as it expands its business in the minerals industry, it falls well within our expectations. Management had guided that the minerals sector would increase revenue contribution from 10% in 2007 to 12% in 2008. As such, we make no changes to our estimates. Our FY07 net profit is 12.2% above guidance while FY08’s is 24.8% above guidance partly due to our inclusion of Pisces Engineering numbers.

Still amongst the cheapest O&G companies. With KNM’s upside to our fundamental fair value of RM5.20 pared down, we downgrade KNM to a Trading Buy. Our Trading target fair value (21x PER on CY08 numbers) is RM6.80, providing some 42% upside. KNM remains one of the cheapest O&G companies with a proven track record and our top pick amongst the bigger cap Malaysian O&G peers.

See what is so confusing is that their 'fundie' value for the stock is stated at rm5.20 for KNM but they have placed a trading value of rm6.80 on the stock!

I guess they are saying that the stock should trade higher than their fundie value.

Saturday, October 06, 2007

The first one focus on the issue between 1929 and 2007. The Alarming Parallels Between 1929 and 2007. The author, Robert Kuttner, co-founder and co-editor of The American Prospect, draws out the parallels between now and 1929.

And here is one of them.

One last parallel: I am chilled, as I'm sure you are, every time I hear a high public official or a Wall Street eminence utter the reassuring words, "The economic fundamentals are sound." Those same words were used by President Hoover and the captains of finance, in the deepening chill of the winter of 1929-1930. They didn't restore confidence, or revive the asset bubbles.

The fact is that the economic fundamentals are sound -- if you look at the real economy of factories and farms, and internet entrepreneurs, and retailing innovation and scientific research laboratories. It is the financial economy that is dangerously unsound. And as every student of economic history knows, depressions, ever since the South Sea bubble, originate in excesses in the financial economy, and go on to ruin the real economy.

It remains to be seen whether we have dodged the bullet for now. If markets do calm down, and lower interest bail out excesses once again, then we have bought precious time. The worst thing of all would be to conclude that markets self corrected once again, and let the bubble economy continue to fester. Congress has a window in which restore prudential regulation, and we should use that window before the next crisis turns out to be a mortal one.

"After eating an entire bull, a mountain lion felt so good he started roaring. He kept it up until a hunter came along and shot him. The moral: When you're full of bull, keep your mouth shut." - A Cowboy's Guide To Life

Comment by ECM Libra: BHIC was borne after the former PSCI went through a restructuring scheme and debt settlement. It emerged as the major shareholder with a 65% stake. Financials are stronger after the restructuring while order book and business activities are increasing.

It owns four shipyards and commands virtual monopoly in shipbuilding and ship repair for the Royal Malaysian Navy (RMN) and other counterparts in the maritime defence sector.

BHIC is now on a clean slate after its restructuring exercise in August this year. Financials are stronger with minimal debt, and it is in a net cash position.

Group performance is set to turnaround in FY07. Net profits are expected to soar by 132% to RM30mil, further surging by 335% to RM130.7mil in FY08, through its share from associated company and operating profits.

Its catalyst would come from increased business activities from maintenance/repairs, shipbuilding, oil and gas, and other key defence-related industries.

BHIC’s most prestigious assets are the four main shipyards within the Boustead Holdings group. Its other main businesses are defence-related activities relating to weapons, missile maintenance and repair, naval and defence communications system, telecommunications products and services.

The businesses are held under BHIC Defence Technologies Sdn Bhd, a wholly-owned subsidiary. Through the previous privatisation agreement, BHIC is assured of securing new contracts to build another 21 patrol vessels for RMN. It also stands to benefit from maintenance and repair jobs for RMN. These jobs can amount to RM150mil a year and net margins are generally higher than shipbuilding, in the region of 20%-30%.

As the group targets to raise the local content on shipbuilding to 50% (minimum requirement is 30%), we expect net margin to rise above 15% as more parts and supplies will be manufactured within the group of companies.

Overall margins are expected to rise with better utilisation of resources and cost optimisation measures. For example, from 16% in FY07, EBITDA margin is projected to jump to 29% in FY08.

We expect BHIC to eliminate its accumulated losses of RM177mil (as at Aug 13 2007) by 2009 or even earlier. Given the huge amount of losses in its books (BHIC and Boustead Naval Shipyard Sdn Bhd), the group is unlikely to pay taxes in the next few years.

While management has not disclosed any dividend policy, we believe it will be announced in future when earnings flow through.

There are some risks involved however for the company. One of them is cost overruns. The other is the rapid changes in construction technology, oil and gas fabrication requirements and increases in labour cost and raw materials. A third is delays in securing government contracts.

Recommendation: Overall comparison with domestic and international peers reveals that BHIC is grossly undervalued. Given its smaller size compared with larger local and international peers, we ascribe a 25% discount to industry average and arrive at a fair value or target price of RM6.65 (PER: 12.6x) FY08 earnings. A BUY.

Keeping it real here. :P

ECM Libra expects BHIC fair value to be at rm6.65 which is based on PER12.6x FY08 earnings.

Keeping it real again.

Net profits are expected to soar by 132% to RM30mil, further surging by 335% to RM130.7mil in FY08, through its share from associated company and operating profits

So their FY12.6x FY08 is based on net profits which is expected to surge 335% to rm130.7 mil.

A quarterly earnings of 1.502 million out a revenue of 27.548 million.

So what do you think of ECM Libra expectation?

For me, there is way too little data for me to pass any judgement.

Disclaimer

ps: I hope this posting is NOT too negative. After all, ECM Libra has now boldly stated that it expects a fair value of rm6.65 for BHIC. :P

This blog posting is focused on one and only one issue. ECM Libra has boldly stated that it expects BHIC to earn 130 million by next fiscal year. Issue is what do you think of ECM Libra bold expectation? Way too optmisitic or do you think it is reasonable?

BHIC stock price? I have no idea how it will perform. And neither will it matter to me if it goes up, down or sideways. Sorry but it's none of my concern. Just keeping it real man.

First thing first. I would like to repeat this comments made by me earlier. It's a disclaimer that I should posted on this blog from day one. See, I never thought this issue of disclaimer was important, for I thought it was redundant since I do not make any stock recommendation or advice on this blog. Second opinions, yes. A couple many times I have made open second opinions on stock. However, I have always leave my commentary open to the readers' own interpretation.Anyway do remember this:

Now I do believe that you realise that I am a mere blogger and I am not an investment advisor or any sort.

Meaning to say, I offer no one any guarantee card here. There is no'pink borang to isi'if and when anyone decides to buys or sells any shares based on what I had blogged on.

So this is to say, I do not owe anyone anything and neither does the reader owe me anything.

Now, I would like to have closure on the series of blog posting on PSCI.

I read your whole posting on PSCI and I found it to be very negative, that's why I said "lousy" write-up. (The said 'argued' with me over PSCI never did happen)

It was just his opinion and yes he certainly is entitled to it.

I hope this brings to an end to this PSCI issue.

Perhaps he has failed to read and understand my writing. Was the negativity un-called for? Was PSCI not a company in a financial distress that a rescue package was needed? And the flip side, I too had stated clearly that there was just reasons to make a trading entry into the stock. However, as luck has it, there was no entry to be found based on the time period I blogged on PSCI. And just for the record again: My first blog on PSCI was on April 6th 2007. PSCI closed that day at 0.505.... On April 20th 2007, that day I reviewed my decision to stop blogging on PSCI. PSCI closed that day at 0.435. (Lowest traded price on that day was 0.41) .

Looking back at it now, since PSCI fell from 0.505 to 0.41 during the time I focused on it, I guess there is just reasons that perhaps my writings were negative.

I blog on issues within the company. And I have always tried to refrain from blogging on the stock price.

Take the blog posting on EcoFirst (Kumpulan Emas). The whole blog posting focused entirely on the issue of EcoFirst shocking performance since listing. There was no mention on the stock performance of EcoFirst and neither did I state my expectation of its stock performance.

And yes, one could say clearly that it was an extremely negative blog posting on EcoFirst.

And from day one, my issue was always focused on the overly optimistic earnings projection made by OSK analyst on the stock. Based on this very issue of overly optimistic earnings projection made on the stock, compare my very first posting Ze Numbers Game! with my very last posting on Crest Builder 2007, was I wrong on this very issue?

Now if one owns Crest Builder, do you want to fault Seng for pointing out the weakness in the company? I find that personal attack on Seng to be truly incredible. Are we living in the world where we do not accept any critics on the stocks we have vested interest in? This for me is so strange. We are talking about the stock market here and ultimately opinions and market strategies will differ. Should we go on hating someone because their opinion differs from ours? Or should we hate someone because they posted criticisms against the stocks we hold? Sadly, I seen this happening quite often.

I would like to hear comments from everyone on this very issue. What's your take on all this?

Oh.. and are comments lousy because they are negtive? (LOL! Peace newbie. :P)

Friday, October 05, 2007

Now I am writing this hoping to clear the issues you had mentioned about it on PSCI.

Well, I am confused.

You had said the following.

Now there's two issues here. Firstly, I have not conversed and neither had I had much dialogue with you, except the one time you asked me about Megan ( Answers to Questions On Megan ). So I do find it strange that you mentioned that you had 'argued' with me on BHIC (PSCI). (Anyway, I would rather use discuss and share opinions. Arguments on the net? Not much point is there? :) )

So when did i first blog on PSCI? April 6th 2007. Regarding PSCi (no comments posted on that blog posting).

Anyway, in the blog posting, all I did was state the dire financial stress PSCI was in AT THAT MOMENT of time. Were those comments unfair?

Now despite the clear dire position PSCI was in, a rescue package was put in place.

And I ended that blog posting with the following series of questions:

Those were the key issues.

Now I do believe that you realise that I am a mere blogger and I am not an investment advisor or any sort.

Meaning to say, I offer no one any guarantee card here. There is no 'pink borang to isi' if and when anyone buys or sells any shares I blogged on.

So this is to say, I do not owe anyone anything and neither does the reader owe me anything.

So those were the questions raised.

A rescue package was placed on PSCI. Would PSCI as a company come out any better?

And as stated, I DID see there existed a viable trading reasoning. Trade this stock based on the fact that a rescue package has been put into motion.

And in that blog posting, I did a detailed study on the reaction of the stock.

Quote:

If that is the case, I think it makes perfect cow sense if the Moo Moo cow focus on this rescue package. This rescue package is first announced on 6th Nov 2006. ( here )

So let's look the chart and see what happened then. Important issue that needs to be addressed is did the market react to this rescue package.

And then I tried to think think from a trading perspective. (LOL! Now I am sure you do understand that I am no trader, hence large doses of garam is required here.)

Two possible entries have been noted.

If this two entries weren't taken... how? The Moo Moo Cow reckons he should call it a pass at this moment of time. The best entry is gone.

The Moo Moo Cow reckons it isn't groovy to enter a rising stock just to be one of them traders in the stock. Just does not make cow sense to the Moo Moo Cow. Don't you agree?

And doesn't the price/volume indicate a potential divergence?

And what's next?

Remember the rescue package would involve capital reduction and rights issue. Approval is also required from its shareholders. Much could still happen.

And at this moment of time... the Moo Moo Cow simply reckons it's best not try to be a hero.

So time for the Moo Moo Cow to stay on the side line and enjoy gracing the grass.

At that moment of time, two previous good entry was noted. However at that moment of time, I saw no viable entry. So I called it a pass. Now I do hope that you do not equate calling a pass on the stock and not trying to be a hero, a set of lousy comments, right?

If one was like the Moo Moo Cow watching the stock on the side, one is waiting for a possible entry.

Well, the Moo Moo Cow thinks he was extremely fortunate that he wasn't in this stock. And if the Moo Moo Cow was on the other side, hoping for more upsides, well the Moo Moo Cow reckons that this is an extremely dangerous game to play cos hoping won't get the cow very far in trading!

PSCI last traed at 11.48 am at 49 sen. Is 46 sen possible? Wonder what's the reaction of the stock then?

Stock was correcting at that moment of time. Were those comments unfair?

Anyway, since I am no trader, I did not have the time to watch PSCI all the time. So I had to make a decision on these serious of posting. See PSCI: Decision Time. Date: April 12th 2007.

Let me reproduce the chart again.

Does the Moo Moo Cow want to continue waiting and observing PSCI? Be patient and wait for the opportunity.

Or does the Moo Moo Cow think it's time to call it a day on PSCi? Let's move on. Let's not waste any more time on the stock and flip the channel? Surely, there are much better stocks out there in the stock market, right?

Yeah, the Moo Moo Cow thinks its time to move on.... so no more PSCi postings for the time being.

I made a decision to stop posting on PSCI back then. PSCI closed the day at 0.465. And I made a review of this decision 8 days later on April 20th 2007. Review of Decisions Made

Here was the chart of PSCI then.

So let's do an audit.

My first blog on PSCI was on April 6th 2007. PSCI closed that day at 0.505.

I ended my 'trading' updates on April 12th 2007. PSCI closing price then was 0.465. (Lowest traded price was at 0.43)

On April 20th 2007, that day I reviewed my decision to stop blogging on PSCI. PSCI closed that day at 0.435. (Lowest traded price on that day was 0.41).

Now obviously PSCI has done super duper well once on the rescue package was completed.

How? I noted that a trading option was viable. But I saw no entry. And after many days, I decided to stop blogging on it.

So seriously.. if these set of my comments of mine were lousy... then yeah... they sure were lousy.

But how come you did not comment on these comments then?

If you had your reasoning or your doubts on why my postings were faulty in anyway, and considering the fact that you had known me for so many years now, why did you not share your view points with me directly then?

Now what I will do is take that earlier blog posting, The Naked Truth in Megan , and add in the latest figures from Megan's quarterly earnings reported last week.

Point of this exercise?

As an investor, I believe it would be a fantastic learning exercise for us. Learn from Megan extreme fraudulent case.

Anway, here it goes, the current numbers will be mentioned first inpurple font.

1. Sales revenue. 11.542 million versus 306.150 million. ( So sales declined by as much as 290 million. So would one be wrong to say that the company faked as much as 290 million sales invoices? Danger in relying on non-issues like sales revenue growth?)

2. Property & plant. 83.099 million versus 588.601 million. ( Property and plant were grossly over valued by some 505.502 million!!! - So an investor trying to value a stock by trying to value the company's net worth, be warned. Property & plant could always be grossly over-stated!)

Monday, October 01, 2007

The Securities Commission (SC) scored a first with the filing of a civil suit against Kenneth Vun @ Vun Yun Liun (Kenneth Vun), managing director and a shareholder of FTEC Resources Bhd (FRB) to compel him to restitute RM2.496 million to the company. The sum represents part of proceeds raised by FRB in an initial public offering in 2003.

The SC filed the suit following its investigation into the utilisation of the public issue proceeds by FRB, which uncovered that Kenneth Vun had utilised a portion of the proceeds for his own benefit and personal use. This utilisation of proceeds was not in compliance with the conditions set by the SC in the listing approval of FRB.

Findings further revealed that Kenneth Vun’s personal utilisation of the proceeds had not been reflected in the FRB Group’s unaudited quarterly financial statements for the first quarter ending on 31 March 2004 released to Bursa Malaysia Securities Bhd.

As a result of the findings, in the suit filed on 26 September 2007, the SC is seeking the following court orders:

that Kenneth Vun personally make restitution of the sum of RM2.496 million to FRB;

that Kenneth Vun be restrained from directly or indirectly managing funds of FRB and/or any of the companies in the FTEC Group of Companies in the absence of proper controls being put in place by the said companies including but not limited to external supervision by the SC;

that Kenneth Vun to cause FRB to properly disclose in its audited report for the next financial year, the manner in which the sum of RM2.496 million had been utilised; and

that Kenneth Vun be made personally accountable for the return of any sum of interest or profit made from the utilisation of the sum of RM2.496 million to FRB.

Adopting a strategic approach to enforcement, the SC is increasingly tapping on its civil enforcement powers to ensure effective and efficient remedies, whilst continuing to take criminal actions in appropriate cases.

This action against Kenneth Vun is one of the numerous civil enforcement actions undertaken by the SC recently against directors of public listed companies for corporate governance misdeeds. These actions serve as a reminder that it is the responsibility of directors to act in an honest and accountable manner in discharging their duties, and especially when dealing with public funds.